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Ref: EBF_013549
The European Banking Federation is the voice of the European banking sector, uniting 32 national banking
associations in Europe that together represent some 4,500 banks - large and small, wholesale and retail, local
and international - employing about 2.5 million people. EBF members represent banks that make available loans
to the European economy in excess of €20 trillion and that securely handle more than 300 million payment
transactions per day. Launched in 1960, the EBF is committed to creating a single market for financial services in
the European Union and to supporting policies that foster economic growth. Website: www.ebf-fbe.eu
EBF comments on the Commission’s Proposal for a regulation on the European Fund for
Strategic Investments COM(2015) 10 Final of 13 January 2015
Key points

To maximise its impact, EFSI should focus on higher risk projects so that additional private
sector financiers will be attracted and ready to contribute. It is also to be noted that it is
unlikely that private investors will be willing to take a first-loss risk, unless this is linked to
an adequate return.

Private sector financiers need to know the details of their investment, in particular project
types, risk profiles and profitability. Compared to investment opportunities offered by the
markets, investors will need transparent information on the EFSI’s selection criteria for
project support and respective EFSI portfolio guidelines.

The EBF recommends that EFSI’s selection process and criteria seek to avoid complexity
and red tape.

Stability and investment go hand in hand. If investment is to be increased in Europe, a stable
regulatory framework must be envisaged for the financial sector.

The EFSI’s multiplier effect will strongly depend on the relief from cumulative regulatory
requirements to be provided to banks. In order to further stimulate the private participation
of banks in the EFSI, a preferential capital treatment for exposures to the EFSI should be
considered.
European Banking Federation aisbl – 56 Avenue des Arts, B-1000 Brussels
Phone: +32 2 508 37 11 – Website: www.ebf-fbe.eu
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General comment
In the current economic environment characterised by abundant liquidity and low interest
rates, the EBF considers the Investment Plan for Europe as very timely and suitable to address
the lack of investment across the economies of the European Union in the aftermath of the
economic crisis.
In this regard, the EBF welcomes the European Commission’s willingness to speed up
investment in Europe and looks forward to working together with the European institutions to
promote, unlock and support investment with the aim of boosting economic growth and
employment in the European Union.
Notwithstanding this, the Investment Plan falls short of measures needed to reenergize SMEs
capacity and propensity to invest, particularly in regard to capitalization levels, which assume a
significant importance in the reduction of SMEs’ implicit risk in some countries.
The biggest challenge lies in the creation of a better long-term business environment for SMEs
and in the improvement of conditions for investments, in general, by means of forward-looking
economic policies and structural reforms. In this regard, more should be done to take into
account the importance of SMEs for the European economy and the difficulties that they
encounter in accessing credit.
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Specific comments
Maximising the impact of EFSI
To maximise the impact of EFSI, a differentiated approach is needed: it is well understood that
each of the sectors in the economy has a distinctive character. Consequently, different financing
schemes for each sector are needed, taking into account their respective particularities, such
as risk profile, revenue streams, tenors, market competition, etc. In addition, different financing
parties will be involved; research projects will require more venture capital and similar
structures and less 'traditional' debt, whereas projects with a strong public sector involvement
should have no difficulty in attracting even large amounts of bank debt financing.
More specifically, to mobilise private investments and maximise the leverage and impact of
EFSI, the European Commission should consider the following issues:
i.
ii.
iii.
iv.
the ability to support economically viable projects, with high business risk, linked to the
company’s operations or project’s features;
from a financing perspective, the ability to provide additionality, by addressing suboptimal investment situations, which could generate cash flows and attractive returns
on investment in line with the risk profile;
in order to make projects more attractive for investors, additional benefits should be
foreseen, such as tax benefits on the returns associated with EFSI; or alternatively
suitable risk-mitigation elements;
projects should be open to all users, avoiding the creation of barriers to entry and
attracting foreign direct investment by:
a. increased integration in financial markets; in this regard, specific steps on structural
reforms for the implementation of the Capital Markets Union are essential;
b. investment in R&D to benefit from fewer barriers to knowledge transfer, open
access to scientific research and greater mobility of researchers;
c. the elimination of regulatory uncertainty; an unclear regulatory environment does
not attract investment but instead lead to the reallocation of investments, to be
made elsewhere in a very global competitive environment;
d. restore investor confidence, regarded as the main reason for weak investment in
Europe.
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Risk bearing capacity
The EBF considers that the EIB risk bearing capacity needs to be increased to avoid a potential
risk of crowding-out. To this end, it is expected that EFSI will mainly focus on projects with
higher business and financial risk.
The EFSI contribution should affect the project's risk profile positively so that private sector
financiers will be attracted and ready to contribute. The focus must be placed on the promotion
of overall financing and not in the substitution of funding sources. EFSI will succeed in
leveraging bank lending if the promotion of complementary financing options, notably involving
long-term investors, such as pension funds, is designed so as to address the financing gap
(namely the equity gap in Europe and first stage financing) while simultaneously preventing
competitive distortions for the banking sector.
It is expected that EFSI will provide a €21bn risk-bearing capacity in order to attract a large
share of private finance to invest in projects which would otherwise not have been funded.
EFSI’s purpose is to absorb significant losses, but no indications are available so far as to how
this mechanism will operate. In this regard, the EBF suggests providing detailed information on
how the risk-bearing capacity will absorb a project’s risks.
The EBF welcomes that the EIB has in the recent years introduced further flexibility in its
intermediated lending through banks, including through risk-sharing mechanisms (RSI). A
promising example is the EIB Project Bond Credit Enhancement programme which kicks in as a
risk buffer in certain circumstances and consequently reduces the risk profile of the project for
financiers. In such a way, a new investor class for debt finance, other than traditional project
financing banks, could be attracted, i.e. pension funds and insurance companies. Making
intermediated lending more flexible and simple should greatly facilitate the channelling of funds
to European businesses.
Depending on the individual project's nature, EFSI’s support can be tailor-made. For example,
EFSI could allow for some flexibility on timing, covering (a) a (shorter) ramp-up period and
expiring when certain economic parameters are fulfilled or the project is performing, or, (b) the
entire lifetime of the project.
EFSI’s contributions could significantly enhance project structures if they were to be deeply
subordinated and take the risk of not being fully repaid. This feature would allow help to fill
funding gaps which could not otherwise be met by private financiers, and so catalyse the entire
project, including additional private funding.
Project selection
Nearer-term results may be obtained by focusing on those projects which are theoretically
feasible, but currently do not meet the expectations of private equity (inter alia, venture
capital) and debt investors. Here, a change of the risk profile of the project by means of EFSI
instruments (perhaps only to a marginal extent) may help to achieve project feasibility. In this
context, there is an important equity gap in project funding, which requires to be filled. For
example, if senior debt providers are only willing to leverage up to say 70% and promoters can
only invest 15%, then the balance needs to be found elsewhere, usually as subordinated debt
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in the capital structure. EFSI could have a useful role in filling this gap by providing equity or
subordinated risk capital which would improve the likelihood of projects being fully funded.
In order to improve the selection process, the EBF suggests:

Very simple criteria that do not become complicated or entangled in red tape;

Appropriate organisational arrangements to ensure operational independence of EFSI’s
Investment Committee. In this context, the EBF welcomes that the members of the
Investment Committee will be appointed following a open and transparent selection
procedure and that its Managing Director will be reporting to the European Parliament
on the performance of EFSI (Article 11).
Moreover, the EBF welcomes that, according to the proposal, “the pipeline of projects is without
prejudice to the final projects selected for support.”
Private sector’s role and contribution
The EBF acknowledges that EFSI aims at crowding-in private investment by providing riskbearing capacity in viable projects. Bank financing is one important part of the financing. To
achieve this, the EIB and the European Commission will need to ensure that there is detailed
information available on project level. Private sector financiers would need to know the details
of their investment, in particular project types, risk profiles and profitability.
Compared to investment opportunities offered by the markets, investors would need
transparent information on EFSI’s selection criteria for project support and respective EFSI
portfolio guidelines. Private investors would naturally tend to compare risk-return conditions of
projects supported by the EFSI to those offered in the wider market. Furthermore, it is unlikely
that they will be willing to take a first-loss risk, unless this is linked to an adequate return.
Banks can play a crucial role in the further increase of the resources of the EFSI, either in the
first stage (direct investment in EFSI) or a second stage (on a project-by-project basis or through
investment platforms). It will therefore be extremely important to clarify the risk/return
allocation among investors (EC/EIB/Banks/Others), in order to promote banks’ participation in
EFSI.
In addition, the capital requirements aspect should be taken into account. Under the Capital
Requirements Regulation (Regulation EU No 575/2013), exposures in the form of units or
shares in Collective Investment Undertakings (CIUs) are risk weighted 100%, having an
exceptional preferential treatment if an external rating exists (article 132 CRR). On the other
hand, exposures to certain Multilateral Development Banks and international structures are
assigned a 0 % risk weight (articles 117.2 and 118 of the abovementioned regulation).
Since exposures to the EFSI will benefit from public guarantees from the EIB and the EU Budget,
they should benefit from a preferential capital treatment, when compared with other exposures
in the form of unit or shares in CIUs, with a risk weight of 100%. With favorable capital
requirements, one can glimpse positive effects for both banks, which would have access to a
broadly diversified portfolio of investments (with a lower risk), and the EFSI, whose success will
heavily depend on the participation of the private sector.
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Governance of the EFSI
Under article 3 of the proposed Regulation, the number of members and votes will be allocated
based on the size of contributions (rather than by consensus). This may be unfavourable for
parties that access to EFSI by providing a less significant contribution.
Regarding the composition of the Investment Committee, it should be noted that the expertise
and independence of this committee will be critical for the choice of the right “additional”
projects and to avoid the trap of political capture.
The EBF considers that relevant stakeholders should be taken into account when deciding the
criteria to be stablished by the Steering Board. This will guarantee that the criteria are in line
with the real needs of investment projects, private investors and the SMEs.
The EBF would also like to remark that it welcomes that: “EIB financing and investment
operations supported by the EFSI should be managed in accordance with the EIB’s own rules
and procedures” and “in accordance with the principles of subsidiarity and proportionality”.
European Investment Advisory Hub (EIAH)
Finally, the proposal also sets up a European Investment Advisory Hub (EIAH) to provide
advisory support to project identification, preparation and development across the European
Union. It is important to promote technical advisory support for project promoters, in particular
for SME funding. Technical advisory support is relevant to: (1) enhance organisational and
financial corporate systems; (2) support the implementation of changes (e.g. business plans,
financial communication practices, corporate governance policy) necessary to attract new
investors; and (3) bring enterprises into contact with networks of advisers, professionals,
institutions and investors.
For more information
Alvaro Lopez
Policy Adviser
Business Finance
Retail, Legal, Economic and Social Affairs Department
Tel: +32 (0)2 508 37 41
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